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Last reviewed December 2005 How-To Kit: Open an IOLTA Account When to Use | Main Checklist | Forms Main Checklist Step 1: Know what an IOLTA is. MRPC 1.15(d), as amended October 18, 2005, provides:
IOLTA is an acronym for “Interest on Lawyer Trust Account.” The IOLTA program requires lawyers to deposit small and short-term client trust deposits into interest-bearing accounts where the interest on the aggregate, minus reasonable service charges, is paid to the Michigan State Bar Foundation for law-related public purposes. The Foundation regulates establishment of the accounts, filing forms, and signature cards. Step 2: Select an appropriate financial institution. Go to a financial institution that does business with lawyers and knows something about lawyers’ trust accounts, preferably one that appears on the Michigan State Bar Foundation’s IOLTA Honor Roll of Banks. The Honor Roll recognizes financial institutions that reduce or completely waive fees on IOLTA accounts to make more funds available for legal services to aid Michigan’s citizens. Step 3: Fill out the notice to financial institution form. The Michigan State Bar Foundation developed a Notice to Financial Institution form to assist lawyers and financial institutions in establishing IOLTA accounts. This form tells the bank how to calculate, remit, and report interest to the Foundation. It also carries the tax identification number of the Foundation, which is tax-exempt, so that no one has to do any tax reporting or pay any taxes on the account. Blank and fillable forms are available on the Foundation Web site. Step 4: Distribute copies of the form. After the financial institution accepts the Notice (indicated by an authorized signature), give the financial institution a copy, send a copy to the Foundation, and keep a copy for your law firm records. Step 5: Set up an accounting system. You must have a way of accounting to a client or third persons about how their funds are handled. MRPC 1.15 does not prescribe any particular accounting system or method, but you must have a system that you and anyone else looking at your records can understand. If you do not know how to set up an accounting system, consult with an accountant. Some time and billing software, such as TABS 3 with the TAS module installed can provide a running statement of trust account transactions to each client with each bill if necessary. Further, programs such as QUICKEN, MICROSOFT MONEY, or QUICKBOOKS can track and reconcile both trust and operating accounts, as well as provide reports to clients. Step 6: Deposit funds. MRPC 1.15(e), as amended October 18, 2005, contains a list of factors a lawyer should consider in determining whether client or third person funds should be deposited in an IOLTA account or a non-IOLTA account. The old bright-line rule of a $50 interest threshold has been eliminated. Step 7: Read the ethics opinions. There are several ethics opinions, available on the State Bar of Michigan Web site under the “ethics opinions” tab, that address trust accounts and other issues related to safekeeping clients’ property. When to Use This How-To Kit explains how to open an Interest on Lawyer Trust Account (IOLTA), links to the appropriate Michigan State Bar Foundation form, and leads the user to other valuable online resources on trust accounts. Using these materials is not a substitute for the attorney’s independent judgment, drafting, and research. Other Resources Research Cutoff The text of this How-To Kit is current through 2005 PA 244 for Michigan statutes and through December 1, 2005, for Michigan court rules and cases. Forms
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